FEATURE ARTICLE, SEPTEMBER 2005

LOOKING OUT FOR THE LITTLE GUYS
Mammoth Equities’ small-tenant focus produces big results.
Brian A. Lee

Companies that pay attention to the small details usually come up big in commercial real estate. For Mammoth Equities, a developer, buyer and manager of office and industrial properties from California to Texas, it’s more than just a credo. It’s the core of a very successful business approach.

Lewis

Mammoth Equities and its affiliates own and manage more than 5 million square feet of property. Approximately two-thirds of the portfolio is office space. All of it caters to the small tenant. Where other owner-operator firms shy away, citing the lack of a credit tenant or the management-intensive work, Mammoth Equities provides a valued service.

“We don’t look at buying a big industrial project with one big industrial tenant or an office building with one credit tenant,” says Lewis. “We’re really like an apartment management company that turned into a commercial management firm. We focus on customer service. Our big game is keeping our small tenants happy so that they don’t leave when their leases come up. [We treat] every tenant as a month-to-month tenant, even if they’ve got a 10-year lease.”

Despite lower yields at times, Mammoth Equities remains committed to buying and developing well-located office and industrial assets in high-growth, high-income markets such as Scottsdale, Arizona; Henderson, Nevada; and Houston. The benefit of this approach becomes obvious upon lease-up of the properties. The company prefers to purchase buildings where the largest tenant takes up no more than 15 percent of the space. In the company’s developments, the average tenant size is 1,100 to 1,200 square feet.

Pipkin

In Scottsdale last fall, Mammoth Equities completed the 77,000-square-foot Mammoth Professional Building-Scottsdale East within the Greater Scottsdale Airpark business center. By August 1, 2005, (9 months after Certificate of Occupancy) the property was 90 percent occupied with approximately 55 tenants. “Typically, wherever we develop, we experience that type of lease-up because there are very few developers that cater to our size tenancy,” says Pipkin. “Our model is too management intensive [for them]. It’s advantageous for us because we understand the model and we lend credence to smaller, shorter term tenants. We also find that the tenants we get are loyal to us because we understand their importance.”

In July and August, Mammoth and its affiliates purchased 1 million square feet of industrial product in central California. The company also recently purchased a 70,000-square-foot building in Scottsdale and a 160,000-square-foot industrial park in Las Vegas called Mammoth Airport Business Center. Mammoth has also acquired two land parcels adjacent to freeways in Arizona and California for development of office, self-storage and showroom product.

Regarding development, the company has 106,000 square feet of office space under construction in San Juan Capistrano, California; 90,000 square feet in Temecula, California; and a 60,000-square-foot building underway in Henderson, Nevada. Development of an 80,000-square-foot building in Arrowhead Ranch in Phoenix will begin soon. 

Building on its momentum while maintaining its distinct, disciplined development and acquisition criteria, Mammoth Equities has expanded its search to the Lone Star State. In Houston, the company closed this summer on three small-tenant office properties totaling 900,000 square feet. Pipkin cites the market’s growth potential with its port as a big reason for the move — Wal-Mart’s decision to build a massive 4 million-square-foot distribution center 30 minutes from downtown Houston supports his view — but there’s more to it than that.

“I think Houston’s been suffering from a long hangover as office space goes, but there’s been a 20-year diversification in the city’s economy away from energy-sector-related industries,” says Lewis. “That bodes well for our kind of business model because our office buildings and industrial parks really depend on smaller tenants doing a lot of different things. You’ve also got a growing population in Houston with no foreseeable let-up.”

Mammoth Equities’ recent Houston acquisitions include a 95 percent-occupied, 178,000-square-foot office building in the Galleria market and a 378,000-square-foot multi-tenant incubator office project on South Loop 910, adjacent to Reliant Stadium. Pipkin says that other Houston-area submarkets such as The Woodlands, Sugar Land and Cinco Ranch hold great appeal for their development model as well. Mammoth Equities will continue to monitor the Houston, Dallas, San Antonio and Austin markets for quality small-tenant development or acquisition opportunities as the company maximizes its Texas foothold.

Founded in 1996 by Bob Wish but based on more than 30 years of real estate investment and development experience, Mammoth Equities has grown from two to about 60 employees in the last 8 years. The company is made up of four groups — development, property management, capital and construction. Mammoth has fully integrated development services, and, according to Lewis, the company develops one property for every three it acquires. Mammoth looks to acquire office and industrial properties exceeding $8 million with last year’s biggest purchase totaling $60 million. Pipkin reports that the company did about $250 million last year alone in tenant-in-common (TIC) acquisitions, adding that Mammoth’s development background and ability to close such deals first with internal capital helps to separate it from the competition.

Mammoth’s versatility and breadth of expertise will certainly help it reach its goal of becoming a primary provider of small-tenant office and business space from California to Florida. Those things will also help the company surmount industry obstacles, and there are many. Patience is key when facing challenges like increasing construction costs and finding the right assets in a market overflowing with 1031 exchange capital. “The good news is that we typically slide in under the radar because our product model is so different,” says Pipkin.

©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.